No matter how much you love your work, you can’t afford to do it for free. You need to ensure that your business turns a profit that makes your efforts worthwhile. One of the best ways to achieve this is to formulate a detailed account of your financial projections for the business. Financial projections leverage data to estimate potential revenue by subtracting expected expenses from the gross expected revenue. Don’t forget to include these five expenses shared by Vire Leafs in your calculations.
1. Cost of Materials
If your business sells a specific product — whether you manufacture it or source it from a supplier — you need to account for the cost of the materials to create these products. This is an important part of your financial projections because accurate projections will allow you to create a reliable budget and scale your business’s growth effectively. To this end, you must incorporate your material expenses into your financial projections in order to ensure accuracy.
2. Rent or Mortgage
You will also need to account for the expense of your business space’s rent or mortgage. If you operate a home-based business and own your home, a portion of its mortgage could be tax deductible. Rent may also be a deductible expense. Accurately calculating your company’s financial projections will help you determine your tax liability. According to Nationwide, the average small business faces a 19.8% tax liability. Staying on top of tax liability is especially important because many states require companies to file an annual report along with taxes in order to retain a business license. Failure to file may also result in fines.
Your financial projections should also include the average cost of utilities for your business. Whether you rent a separate space or conduct business from home, you should estimate what portion of your utility expenses can be attributed to your business. To create financial projections and incorporate your utility expenses, you should create a spreadsheet that details expected income as well as deducted expenses, with the sum totaling your business’s projected profits.
Insurance is yet another significant expense that cannot be overlooked when forecasting your financial future. You should calculate the total of every premium your business pays and ensure that this expense is included in your projections. This figure should also be included in financial statements such as your profit and loss statement and your expense sheet — both of which may be added to your financial projection document.
5. Software for Scheduling and Accounting
Investing in software for accounting and scheduling is an essential expense for any business. Not only does it help save time and streamline processes, but it also ensures accuracy and aids in compliance with local regulations. With the right software, businesses can easily track their finances while budgeting for the future more efficiently. Additionally, the automation of tasks such as invoicing, payroll, and billing can save hours of manual labor and reduce costs while providing more accurate information. The best part: some of this software is free. If you want to make a great schedule, for example, here’s a possible solution that provides easy-to-use premade templates at no cost to you.
Reflect in Your Annual Report
At the end of the year, you can use these financial projections as you compile your annual report for your key stakeholders. You can establish these metrics as goals and present how your business did keeping with them. Your report will also need to include updated business information so that you stay in compliance. You can complete this report yourself or work with a subscription company to have it completed for you.
Plan, Stay Organized, and Avoid Penalties
Financial projections are essential to tracking your business’s success and viability. It also helps you avoid the fines and penalties that could come with failing to file an annual report with your state — or worse, failing to pay taxes. Stay organized and anticipate the future by including these five expenses in your financial projection report.